NYU Startup School_Getting To Product-Market Fit Part I

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Startup School:
Getting to Product-
Market Fit - Part I
Lindsey Gray
Senior Director, NYU Entrepreneurial Institute
Adjunct Faculty, Tandon School of Engineering
Instructor, NSF Innovation Corps (I-Corps)
September 20, 2016

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75%
of startups
fail to return
investors capital
Shikhar Ghosh
Harvard Business School

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So why do so
many startups
fail?

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Top 12 Reasons Startups Fail

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Top 12 Reasons Startups Fail
42%
#nyuef
cite lack
of market
need

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Need to do this before
ﬁnishing designing and/or
building your product/service

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What makes for a
successful startup?

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(At least) Three Parts to
Building a Successful Startup
1.  Advancing the product/service
2.  Beginning to build a team
3.  Finding a repeatable business model
u  Most focus on #1 and/or #2
u  Successful eﬀorts require all three
9

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Evidence-based
Entrepreneurship
(aka the Lean Startup)
10

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All I Need to Do is Make the Forecast

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“For every
one of our
failures, !
we had
spreadsheets
that looked
awesome!”

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“Everyone
has a plan
until they get
punched in
the face!”

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Planning comes before
the plan

@NYUEntrepreneur18
“In preparing
for battle I have
always found
that plans are
useless, but
planning is
indispensable.”

@NYUEntrepreneur
Business Model Canvas
The Business Model Canvas
Revenue Streams
Channels
Customer SegmentsValue PropositionsKey ActivitiesKey Partners
Key Resources
Cost Structure
Customer Relationships
Designed by: Date: Version:Designed for:
What are the most important costs inherent in our business model?
Which Key Resources are most expensive?
Which Key Activities are most expensive?
is your business more
Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)
Value Driven (focused on value creation, premium value proposition)
sample characteristics
Fixed Costs (salaries, rents, utilities)
Variable costs
Economies of scale
Economies of scope
Through which Channels do our Customer Segments
want to be reached?
How are we reaching them now?
How are our Channels integrated?
Which ones work best?
Which ones are most cost-efficient?
How are we integrating them with customer routines?
channel phases
1. Awareness
How do we raise awareness about our company’s products and services?
2. Evaluation
How do we help customers evaluate our organization’s Value Proposition?
3. Purchase
How do we allow customers to purchase specific products and services?
4. Delivery
How do we deliver a Value Proposition to customers?
5. After sales
How do we provide post-purchase customer support?
For what value are our customers really willing to pay?
For what do they currently pay?
How are they currently paying?
How would they prefer to pay?
How much does each Revenue Stream contribute to overall revenues?
For whom are we creating value?
Who are our most important customers?
Mass Market
Niche Market
Segmented
Diversified
Multi-sided Platform
What type of relationship does each of our Customer
Segments expect us to establish and maintain with them?
Which ones have we established?
How are they integrated with the rest of our business model?
How costly are they?
examples
Personal assistance
Dedicated Personal Assistance
Self-Service
Automated Services
Communities
Co-creation
What Key Activities do our Value Propositions require?
Our Distribution Channels?
Customer Relationships?
Revenue streams?
categories
Production
Problem Solving
Platform/Network
What Key Resources do our Value Propositions require?
Our Distribution Channels? Customer Relationships?
Revenue Streams?
types of resources
Physical
Intellectual (brand patents, copyrights, data)
Human
Financial
Who are our Key Partners?
Who are our key suppliers?
Which Key Resources are we acquiring from partners?
Which Key Activities do partners perform?
motivations for partnerships
Optimization and economy
Reduction of risk and uncertainty
Acquisition of particular resources and activities
What value do we deliver to the customer?
Which one of our customer’s problems are we helping to solve?
What bundles of products and services are we
offering to each Customer Segment?
Which customer needs are we satisfying?
characteristics
Newness
Performance
Customization
“Getting the Job Done”
Design
Brand/Status
Price
Cost Reduction
Risk Reduction
Accessibility
Convenience/Usability
types
Asset sale
Usage fee
Subscription Fees
Lending/Renting/Leasing
Licensing
Brokerage fees
Advertising
fixed pricing
List Price
Product feature dependent
Customer segment
dependent
Volume dependent
dynamic pricing
Negotiation (bargaining)
Yield Management
Real-time-Market

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So what do we do?

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What’s a Startup?

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A temporary organization
designed to search
for a repeatable and scalable
business model

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What is a business model?

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What is a Business Model?
How a company
creates value for itself
while delivering
products or services for
customers

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Revenue Streams
Channels
Key Resources
Cost Structure
Variable costs
Economies of scale
Economies of scope
want to be reached?
channel phases
1. Awareness
2. Evaluation
3. Purchase
4. Delivery
5. After sales
Mass Market
Niche Market
Segmented
Diversiﬁed
examples
Personal assistance
Self-Service
Automated Services
Communities
Co-creation
Revenue streams?
categories
Production
Problem Solving
Platform/Network
Revenue Streams?
types of resources
Physical
Human
Financial
characteristics
Newness
Performance
Customization
Design
Brand/Status
Price
Cost Reduction
Risk Reduction
Accessibility
types
Asset sale
Usage fee
Subscription Fees
Licensing
Brokerage fees
Advertising
fixed pricing
List Price
Customer segment
dependent
Volume dependent
dynamic pricing
Yield Management
Real-time-Market
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis
Hypothesis

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More than half of
your assumptions
are wrong!
30

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Customer Development
How you search for the business model
Test assumptions
about customer
needs/problem &
develop MVPs
Seek validation
that people are
interested in
your product/
solution
Begins to build
demand &
improve
eﬃciency of
customer
acquisition
Drive growth
aggressively  
& execute
business model

@NYUEntrepreneur
“You can’t just
ask customers
what they
want and then
try to give that
to them.”

@NYUEntrepreneur
“New ideas come
from watching
something,
talk(ing) to people,
experimenting, "
asking questions !
and getting out of "
the ofﬁce!”

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“Great
founders
never put
anyone
between
themselves
and their
users.”

@NYUEntrepreneur
Customer Discovery
u Apply the scientiﬁc method to
business model development
Modify
hypothesis
Observe
phenomena
Formulate
hypothesis
Test
hypothesis
via rigorous
experiments
Establish
theory
based on
repeated
validation of
results
PIVOT!

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First test the problem,
then test the solution
Customer Development
40

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Value Proposition
What Problem Are You Solving?

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Value Proposition
u  describes the
beneﬁts customers
can expect from a
bundle of products
and services

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Customer Segment
Who Cares?

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Customer Proﬁle
u  Who are they and
why would they
buy?

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Problem-Solution Fit
Fit

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www.youtube.com/watch?v=LkdJwYQIR2o
But Facebook…

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Key Questions for Value Prop
u  Problem Statement: What is the problem?
u  Technology / Market Insight: Why is the
problem so hard to solve?
u  Product: How do you solve it today?
u  Competition: Who is delivering that
solution?
u  Utility: What level of improvement
in eﬃcacy/safety/cost/etc. is needed?
u  Market Size: How big is this problem?

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Deﬁne Customer Archetype
u  Who are they?
o  Position / title / age / sex / role
u  How/where do they buy?
o  Discretionary budget (name of
budget and amount)
u  What matters to them?
o  What motivates them?
u  Who inﬂuences them?
o  What do they read/who do they
listen to?

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Customer Proﬁles
Describe the person: name, age, relevant personal infoImage
Jobs To Be Done Existing Solutions
How They Buy
Pains
Gains
Inﬂuencers
Barriers

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put yourself in
the customers’
shoes

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What is your potential customer
trying to get done?
Jobs to be Done
53

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…they want
a quarter-inch hole!"
People don't want to buy
a quarter-inch drill…
SOLUTION
(WHAT)
JOB
(WHY)
Innosight
LLC

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“Make me efficient at
my work”
FUNCTIONAL
“Convey my
professional status”
SOCIAL
“Make me confident
that I can get the job
done”
EMOTIONAL
“Help me perform like
a professional”
JOB
•  Valueà demonstrate
my ability to
recognize value
•  Prestigeà show
others that I focus on
quality starting with
my equipment
•  Confidenceà ensure
me that I can count
on my equipment
•  Versatilityà give me
the ability to work in
different
environments
•  Powerà give me the
ability to cut through
thick/dense material
•  Speedà help me get
the project done
quickly
Innosight
LLC

@NYUEntrepreneur
Guess the product from the job
I want to feel conﬁdent
when having a
close conversation
I want my mouth
to feel refreshed
I want to kill the germs
that cause bad breath
I want to show that I
have the latest gadget
I want to be able to
get information easily
when on the go
I want to kill small
snippets of time
productively
I want feel ‘in-the-know’
about things happening
in my social circle
I want an eﬃcient way
to share my pictures
with all my friends and
family
I want a way to
reconnect with friends I
haven’t talked to in a
while
I want to feel like I’m
buying the best for my
family
I want to be socially
conscious
I want access to high-
quality grocery products
I want the convenience
of shopping online
I want to be able to
decide how much I will
pay for a product
I want an easy way to
sell things I no longer
need
Innosight
LLC

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Who’s the Customer?
User

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User Economic
Buyer

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User Influencer Recommender Decision
Maker
SaboteurEconomic
Buyer

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How Do They Interact to Buy?
u  Organization Chart
u  Inﬂuence Map
u  Sales Road Map

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“Customer”
Ecosystem of people you need
to understand, satisfy and appeal to
in order to get them to buy your product

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Technology Lifecycle
Adoption Curve
64

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Who wants…
u A combined phone, internet
browsing & mail device with
o No copy & paste
o No physical keyboard
o Only 2G data speeds
o No corporate email
o No 3rd party apps
o Only works on one carrier

@NYUEntrepreneur
Look familiar?
0
20
40
60
80
100
120
140
160
180
Year 1
(2007-08)
Year 2
(2008-09)
Year 3
(2009-10)
Year 4
(2010-11)
Year 5
(2011-12)
Year 6
(2012-13)
Year 7
(2013-14)
UnitSales(millions)
Apple iPhone Sales Since Introduction
Enthusiasts
Visionaries
Pragmatists

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What’s your point?
I have two!
68

@NYUEntrepreneur
1. As a startup, you are
not capable of serving
the mainstream market
With your half-baked product,
small staﬀ & non-existent sales
& market budget
69

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2. There is no point in
building the features
you will need when you
have a million users
Optimize your product for the
immediate stage of growth
70

@NYUEntrepreneur
“Even though you
target just those
few potential
customers today
there is no law
that says you are
limited to those
customers for
eternity.”

@NYUEntrepreneur
Product / Solution Fit

@NYUEntrepreneur
I’ve ﬁgured out who I’m selling to
and what pain point I’m solving!
I’m ready to start building and
selling… Right?!

@NYUEntrepreneur
? ✔ ✔
?
?
?
?
? ?
Not so fast!
You can’t have a valid
business until you test
both sides of the
canvas!

@NYUEntrepreneur
Channels
How does your product get to customers?

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How do you Get, Keep and Grow Customers?

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Revenue Streams
How do you make money?

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Key Activities
What’s Most Important for the Business?

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Key Resources
What are your most important assets?

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Key Partners
Who are your Partners and Suppliers?

@NYUEntrepreneur
Cost Structure
What are the Costs and Expenses?

@NYUEntrepreneur
Revenue Streams
Channels
Key Resources
Cost Structure
Variable costs
Economies of scale
Economies of scope
want to be reached?
channel phases
1. Awareness
2. Evaluation
3. Purchase
4. Delivery
5. After sales
Mass Market
Niche Market
Segmented
Diversiﬁed
examples
Personal assistance
Self-Service
Automated Services
Communities
Co-creation
Revenue streams?
categories
Production
Problem Solving
Platform/Network
Revenue Streams?
types of resources
Physical
Human
Financial
characteristics
Newness
Performance
Customization
Design
Brand/Status
Price
Cost Reduction
Risk Reduction
Accessibility
types
Asset sale
Usage fee
Subscription Fees
Licensing
Brokerage fees
Advertising
fixed pricing
List Price
Customer segment
dependent
Volume dependent
dynamic pricing
Yield Management
Real-time-Market
9 Guesses
Guess
Guess
Guess
Guess
Guess
Guess
Guess
Guess
Guess

@NYUEntrepreneur
But,
Realize They’re
Hypotheses

@NYUEntrepreneur
Customer Discovery
The search for Problem-Solution Fit
Test assumptions
about customer
needs/problem &
develop MVPs
Seek validation
that people are
interested in
your product/
solution
Begins to build
demand &
improve
eﬃciency of
customer
acquisition
Drive growth
aggressively  
& execute
business model
PSF

@NYUEntrepreneur
Problem-Solution Fit
“Can you identify and
validate a problem or
need in the market
that enough people
care about?”
86
“Do you have a
feasible solution
(innovation) for
meeting this
problem or need?”

@NYUEntrepreneur
Customer Validation
The search for Product-Market Fit
Test assumptions
about customer
needs/problem &
develop MVPs
Seek validation
that people are
interested in
your product/
solution
Begins to build
demand &
improve
eﬃciency of
customer
acquisition
Drive growth
aggressively  
& execute
business model
PSF PMF

@NYUEntrepreneur
Product-Market Fit
“Can you build and
deliver a product/
service that satisﬁes
the customer
problem or need?”
88
“Do the product /
service features
deliver value (alleviate
pain, create gain) to
the customer?”

@NYUEntrepreneur
Customer Creation
The validation of Business Model Fit
Test assumptions
about customer
needs/problem &
develop MVPs
Seek validation
that people are
interested in
your product/
solution
Begins to build
demand &
improve
eﬃciency of
customer
acquisition
Drive growth
aggressively  
& execute
business model
PSF PMF BMF

@NYUEntrepreneur
Business Model Fit
“Can you build and validate a
repeatable and scalable business
model?”
90

@NYUEntrepreneur
Company Building
The execution of Business Model Fit
Test assumptions
about customer
needs/problem &
develop MVPs
Seek validation
that people are
interested in
your product/
solution
Begins to build
demand &
improve
eﬃciency of
customer
acquisition
Drive growth
aggressively  
& execute
business model
PSF PMF BMF

@NYUEntrepreneur
Case Study Exercises

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www.youtube.com/watch?v=Zd0Utfu_4MM

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Define Hypotheses
97
1
What must be true about for this venture to
succeed? What are the ‘deal-killing’ assumptions?
Hint: initially they should focus on VP and CSs
ü  Recording attendance today is tedious and inefficient for
teachers
ü  Teachers want two-way communication with parents, and
are dissatisfied with existing tools
ü  Teachers bear the burden of tracking and reporting on
student tardiness and absenteeism

@NYUEntrepreneur
Design an experiment
98
2
Who should I talk with to validate/invalidate that my
‘deal-killing’ assumptions are correct? Where can I
ﬁnd these people?
WHO?
ü  Teachers – public school
ü  Teachers – private schools
ü  Principals (private/public)
ü  Grade school teachers
ü  High school teachers
WHERE?
ü  Urban schools
ü  Suburban schools
ü  Your kids’ teachers
ü  Your teacher friends
98

@NYUEntrepreneur
Conduct a test
99
3
What can I ask during customer interviews to test
my assumptions?
ü  How do you record attendance currently?
ü  How long does it take you to record attendance? What
works well about this? What doesn’t?
ü  How often do you communicate with your students’ parents?
What is typically the reason for this communication?
ü  How do you keep track of how many days a student has
been late or absent? What do you do with this information?
99

@NYUEntrepreneur
Extract insights4
What did you learn from your interviews that will
inform your business model?
ü  Teachers currently record attendance with pencil and paper.
They do it once to turn into their administrator, and then a
second time for their own records. It doesn’t take long to do,
but it’s annoying to have to do it twice.
ü  The main way teachers communicate with parents is at
parent-teacher conferences, which happens for the ﬁrst time
a couple months into the school year. When there’s a severe
problem they try to get their phone number so they can call,
which sometimes is eﬀective and sometimes not.
10
0

@NYUEntrepreneur
Extract insights4
What did you learn from your interviews that will
inform your business model?
ü  Teachers would like to be able to communicate with parents
more frequently about issues they see, but they’d need
easier access to the right contact information.
ü  Some teachers have access to an iPad in their classroom, but
not all. Many use their own personal smart phone for
communications with parents. We got a mixed response
when we asked teachers if they’d be comfortable giving
parents their personal cell phone number.
101

@NYUEntrepreneur
Key questions to ask
u  What are your riskiest assumptions?
u  How can you best test them?
u  Do these tests validate or invalidate
what you thought? What needs further
discovery?
u  What new questions arose from these
discussions?
10
2

@NYUEntrepreneur
Increase Likelihood of Success
u  Get customer feedback before building &
launching your product
u  Launch products that customers actually
want, more quickly & cheaply
u  Secrets of success:
§  Experimentation over elaborate planning
§  Customer feedback over intuition
§  Iterative design over sequential design
10
3

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Getting Started
Cheat Sheets
104

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TOTAL
Selecting Your Initial Target Customer Segment
How to use this guide: Identify ≧3 potential customer segments that you believe are most likely to be your early adopters/
enthusiasts, and list them across the top of each column. Identify ≧5 criteria (excluding market size) that you believe will
determine your success, and list these on the left most column of each row. Honestly rate how you believe you can serve each
segment today on a scale of 1 to 3, where 3 is best. Sum up your ratings at the bottom of each column. Put the segment with
the highest score in the Customer Segments box on your Business Model Canvas.
Segment
Criteria

Customer Archetype Proﬁle
Describe the person: name, age, relevant personal infoImage
Jobs To Be Done Existing Solutions
How They Buy
Pains
Gains
Inﬂuencers
Barriers

@NYUEntrepreneur
Who are your customers?
Jobs To Be Done:Gains:
Pains:

@NYUEntrepreneur
What value do you provide?
Gains:
Pains:

@NYUEntrepreneur
What product or service?
Solution:

@NYUEntrepreneur
Helping startups start up

@NYUEntrepreneur
Tuesday 9/27, 4pm
Getting to Product-Market Fit Part II
112
1 Next week’s
Startup School:
bit.ly/nyustartupschool

@NYUEntrepreneur113
2 Blackstone Launchpad
coaching session
Say you went to Startup School!
entrepreneur.nyu.edu

@NYUEntrepreneur114
3 NYU Prototyping Fund
Free $$$ to build your prototypes!
bit.ly/PrototypingFall16

@NYUEntrepreneur115
4 $300k Entrepreneurs
Challenge Team Hunt
Meet a teammate!
bit.ly/300KTeamHunt

@NYUEntrepreneur
Questions?
entrepreneur@nyu.edu
@nyuentrepreneur
entrepreneur.nyu.edu
16 Washington Place
116

NYU Startup School_Getting To Product-Market Fit Part I

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NYU Startup School_Getting To Product-Market Fit Part I